Rate Hikes and Price Falls
Some interesting reading in my weekend paper. Some folks are actually HOPING for the housing market to fall. Why? So their kids will be able to buy homes. (Prices are pretty high in some markets...)
At the same time, there are financial analysts talking a lot about housing prices dropping, because of the ever-higher interest rates predicted by the Fed, as well as bond yields going up. Now, while the Fed's activities may sometimes interest you (no pun intended), bond yields probably don't. But here's where the bond market meets your mortgage: most banks get their mortgage money on the bond market! As bond yields go up (which means the interest they pay goes up), the interest rates you pay will definitely move.
All this affects the stock market as well, interestingly enough. Some folks believe that the economic growth in the US has actually been fueled by bonds, and that as bonds become more attractive because of higher interest, stocks will become less attractive, and even the stock market could "correct".
Some analysts are predicting that the "bears" will soon be running Wall Street.
So what are regular people like you and I (who don't live and breathe this stuff) supposed to do in the face of so much increasingly "bad" news? Well, here's what I do: I steer my course. In the same way that I don't necessarily spend more money because interest is low, I don't panic because interest is going up. I don't let the constant barrage of financial analyst "forecasting" to keep me from what works. And in my case, what works is ensuring that I'm paying down my debt; I'm "paying myself first" (even if it's only a little bit) and I'm getting that into a secure savings vehicle (like a bank or money market fund); and I'm making sure that I'm not taking risky moves that I can't handle in case of emergency.
So boring. I know. But I can do without the drama of bankruptcy, or wondering which bills I can afford to pay this month, because Number 1 son needed braces.
Given the number of "gloom and doom" predictions, I suspect that things could take a bit of a dip. Do you need to panic? Probably not. The tech sector took a huge hit in 2000, as the "tech bubble" burst, and most of us were okay. The current policies adhered to by the Fed protect most Americans from a really nasty fall. We've learned from the mistakes of the past, like the Great Depression in the 30's, and Black Monday in the 80's.
But it does make sense to be "conservative" with your money. If you haven't read "The Automatic Millionaire", I'd highly recommend it. It's on my shelf. It shows how easy it is to do the right thing, even if you earn very modestly. It doesn't have to be about "self control" if you set up your saving to be "automatic". And doing so ultimately brings you so much more financial freedom! It's worth saying a temporary "no" to indulging yourself now to be able to say "yes" later to early retirement and other, bigger "goodies".
Which brings me back to my current game plan. We're still planning on spending my wife's impending bonus on a vacation -- and putting at least the other half on our mortgage. If interest rates go up before we negotiate our mortgage renewal, we'll still be saving money. And I'm all for that.